Attorney Doug Gallagher Discusses Indiana’s Patent Statute Impact on Restricting Frivolous Infringement Lawsuits
Bingham Greenebaum Doll LLP partner Douglas Gallagher commented on Indiana’s recently enacted law aimed at reducing frivolous patent infringement lawsuits in the Indiana Lawyer. While the passage of House Enrolled Act 1102 has not been met with a lot of noise, according to the publication, it is causing attorneys to think twice before sending a letter asserting patent infringement.
Lawyers now have to consider the requirements of laws that have bloomed in many states and the potential ramifications of being found in violation of these laws before sending such letters. Authored by Rep. Eric Koch, the law is aimed at individuals who assert a claim of patent infringement in bad faith and permits the courts to hand the plaintiff the defendant’s bill for attorney fees and litigation expenses.
Indiana’s statute targets bad faith demand letters from non-practicing entities (NPEs), sometimes referred to as patent trolls, which assert the recipients are violating the patent and must pay a licensing fee or face an infringement suit. Primarily, these letters are sent to end users, such as small businesses, who opt to pay the requested fee rather than incur the high cost of a court battle. The new statute outlines the information that the written communication must contain, such as identifying the specific product or service that is covered by the claims in the patent.
In describing Indiana’s law, Gallagher explained “the state is carrying a big monetary stick.”
When it took effect July 1, 2015, the law changed the equation for patent assertion, Gallagher said. Prior to the statute, NPEs might have sent numerous letters and if a handful of end users wrote checks, that was considered successful. But now the risk is higher since one of the recipients may invoke the law, which can result in the NPE paying a large amount of money.
The increase in infringement litigation as well as the jump in small businesses and end users getting threatening by demand letters has raised awareness of non-practicing entities. However, not all NPEs are bad actors as shown by the Indiana law, which made a carve-out for universities that are by definition non-practicing entities, but are generally not engaging in bad behavior. Nevertheless, bad actors are not a black and white issue.
In this regard, Gallagher believes tapping the brakes at this point may be a good idea. He pointed to recent patent rulings from the Supreme Court of the United States, which he has previously discussed in an Indiana Lawyer column, such as Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (U.S. 2014), as well as the still-new America Invents Act that made fundamental changes to the U.S. patent system. The ramifications of these events will take time to determine, and while the states with these new patent related laws will be a testing ground of sorts, he advocated a wait-and-see approach for now to see how these new laws and Supreme Court rulings are applied.